Monday October 28, 2013

Florida and New York Appear In Competition To Cut Taxes And Attract New Business

Tuesday 10/22/13- Governor Rick Scott issued a white paper announcing that he will pursue $100 million in state agency spending cuts next year and that each state agency  will be expected to find areas to reduce expenditures to meet the goal. His announcement bolsters an earlier commitment to cut taxes next year by $500 million. Additionally, the Governor has stressed that he doesn’t want any new debt or investments in road projects, land buys or school construction without specific and accountable returns on investment for taxpayers. Florida receives the vast majority ( over 82%) of its tax receipts from sales taxes while just 6% of the state’s revenue comes from corporate income tax, which the governor cut during his first term. The governor and legislature also previously cut taxes on real estate brokers and afforded tax credits for capital investments, research and development, as well as other tax cuts. Scott’s announcements to cut taxes by $500 million and reduce state spending by nearly $100 million, come on the heels of budget estimates predicting a current fiscal year budget surplus of approximately $846 million. If the governor accomplishes his budget goals during the upcoming regular legislative session, where he’ll have to negotiate with a not always like-minded Republican controlled House and Senate, he will go a long way towards accomplishing his election promise of making Florida the most business friendly state in the nation. Meanwhile, New York Governor Andrew Cuomo recently announced his own innovative program to attract investment capital and shine a spotlight on the Empire State’s welcome sign to new businesses. The program, Startup NY (Start Up New York) was the subject of a full-page advertisement in Thursday’s Wall Street Journal and touts that new businesses can operate 100% tax-free for a ten year period (no business, corporate, state or local taxes, or franchise fees). Let’s hope that Governor Scott and the Legislature can engage in spirited but cooperative debate on the state’s budget for next year so that they can find ways to continue steadily growing Florida’s recovering economy. It just makes good sense for our industry and for all Floridians.

Now, let’s review many of the important insurance issues we’ve been following for you over the past two weeks.

Legislative Update: Early Filed Insurance Bills Signal another Intense Legislative Session In 2014

Several insurance related bills have already surfaced from bill drafting and have been filed by sponsors, indicating yet another legislative session where our industry’s issues are likely to dominate headlines. Below is a brief recap of the filed bills and what they hope to accomplish:

HB 143 by Rep. Jake Raburn (R-Hillsborough). Filed on 10/4/13, this bill amends the statutes regarding the Florida Insurance Guaranty Association (FIGA) by revising the duties of the association; authorizes the association to collect regular and emergency assessments directly from policyholders and clarifies that assessments are not considered premium for premium tax purposes. It makes FIGA assessments much fairer by evenly spreading assessments across all policyholders. Currently, every Florida policyholder pays a different assessment amount that is based on whether their insurance company is growing, shrinking, or newly licensed. Under the bill, FIGA will determine the amount needed to pay claims and establish a single assessment amount to collect from every policyholder. The bill also simplifies the assessment process for insurers because FIGA will choose one percentage amount to be used for assessments that all insurance companies will apply to the policy premium for all of its policyholders. Insurance companies will then remit the funds to FIGA and continue to collect the assessments on new policies until FIGA tells them to stop collecting the funds. This is much simpler than the current system and on its face, appears to be a more equal and fair assessment formula.

SB 228 by Sen. Jeremy Ring (D-Broward). Filed on 10/2/12, this bill amends the Florida Hurricane Catastrophe Fund statutes by including allocated loss adjustment expenses in the definition of “losses”; establishes that effective June 1, 2015, the fund’s aggregate retention level may not exceed $5 billion; requires that the board publish the fund’s borrowing and claims-paying capacity in January of each year as opposed to in May and October of each year and that the board’s statement must include an estimate for a minimum of three years of bonding capacity. The bill also requires the board to negotiate a line of credit to reimburse insurers if payments exceed available assets and bonding receipts. The line of credit must be sufficient to cover projected receipts from a minimum of three years’ bonding and for second-event catastrophes. The line of credit must be closed by July 1, 2015. The bill also repeals, from the statute, the requirement that CAT Fund premiums include a rapid cash build-up factor.

HB 129 by Rep. Jake Raburn (R-Hillsborough). Filed on 10/2/13, this bill requires Citizens Property Insurance Corporation to submit to the Office of Insurance Regulation and the Insurance Consumer Advocate, biannual reports on the number of residential sinkhole policies issued and declined, as well as the reasons for declination of coverage; provides legislative findings that insured sinkhole losses must be repaired by stabilizing the land and structure in addition to repair of foundations ; establishes the Citizens Sinkhole Stabilization Repair Program for sinkhole claims and requires that by March 31, 2015, all such claims must be remediated through the repair program; provides program components; specifies corporation’s liability with respect to sinkhole claims; and requires the corporation to offer specified deductible amounts for sinkhole loss coverage.

HB 187 by Rep. Kathleen Passidomo (R-Collier). On 10/17/13, the Representative again filed her insurance company fair claim settlement bill for consideration during the upcoming 2014 Regular Session. Passidomo first filed the legislation (CS/HB 813, 2013 session) last year, however, the bill died on May 3, 2013, in the House Judiciary Committee. HB 187 will require insureds, claimants or persons acting on their behalf to provide insurers with written notice of loss as a condition precedent to statutory or common-law action for bad-faith failure to settle insurance claims. The bill also provides that insurers are not liable for claims of bad faith to settle claims if certain conditions are met.

Update: First District Court Of Appeals Throws Out Lower Court Injunction Against 2012 PIP Reforms – OIR Issues Corresponding Statement

10/23/13- The seemingly never ending legal battle over the legislature’s 2012 PIP reforms took another turn today as the First DCA entered an Order reversing the earlier implementation injunction entered by Leon County Circuit Court Judge, Terry Lewis. In reversing the injunction the court concluded that a group of chiropractors, massage therapists and acupuncturists, including a fictional “Jane Doe” purporting to represent all injured Florida citizens, lacked standing to bring an access-to-courts challenge when they challenged the implementation of HB 119. Left alone, the legislation would have capped PIP benefits at $2,500.00 for non-emergency care; excluded licensed massage therapist and acupuncturists from being reimbursed medical benefits; and, required patients to seek care within 14 days of an accident. The court ruled that these providers failed to assert a violation of their constitutional right of access to courts, thereby, failing to meet their standing burden. The court went on to indicate that, without a showing of an actual denial of access to courts in a specific factual context, the providers lacked standing to assert this claim. The court further noted that the actual parties in interest, injured motorists, are absent from this case and that it was not persuaded by the plaintiffs’ attempt to circumvent standing by joining the fictional “Jane Doe,” who was meant to represent all hypothetical Florida citizens that were, are, or will be injured as a result of a motor vehicle accident. Although the trial court held that the Plaintiffs had a sufficient interest in the outcome of the case because they derive a substantial percentage of their income through PIP insurance payments, which the 2012 PIP Act prohibits or severely limits, the court ruled that “the alleged economic harm suffered by the Plaintiffs in this case is an insufficient basis to assert others’ potential access-to-courts claims.” Later in the day, OIR’s Director of Property & Casualty Product Review released the following statement about the court’s ruling, “The Florida First District Court of Appeal today reversed an injunction that stopped implementation of key provisions of the 2012 PIP law revisions.  The District Court ruled that the chiropractor, acupuncture physicians, and massage therapists lacked “standing” to bring the claim that the PIP revisions restricted a motorist’s constitutional access to courts right.  The court did not rule on the merits of whether the PIP law revisions are valid if there is a proper plaintiff. By separate Order, the court reinstated the stay of the trial court’s injunction that stopped implementation of key provisions of the 2012 PIP law revisions.  This means the 2012 PIP law revisions are now fully in effect.”  We will keep you updated on key developments in this court battle, as well as whether the Legislature decides to take action prior to the conclusion of all litigation.

OIR Beats Back Windstorm Loss Reduction Credits Rule Challenge In Appellate Court

Friday 10/11/13- Florida’s First District Court of Appeals (DCA) in Tallahassee issued an Opinion siding with the Office of Insurance Regulation (OIR) and the Financial Services Commission making it clear that an Administrative Law Judge (ALJ) at the State Division of Administrative Hearings (DOAH) erred when he entered a Final Order invalidating an OIR rule and forms addressing windstorm loss reduction credits and premium discounts for hurricane loss mitigation. The Appeals Court also found that the ALJ erred in deciding an issue of standing to challenge the rule and forms in the first place.  In May 2012 Secure Enterprises, LLC (Secure), the manufacturer of the Secure Door residential garage door bracing system filed a rule challenge in which it contended that OIR rules 69O-170.017 and 69O-170.0155 and accompanying Forms 1699 and 1655 were invalid exercises of delegated legislative authority and were arbitrary and capricious.  Secure challenged the fact that Form 1699 includes an insurance credit for homeowners who upgrade their windows or glazed openings to protect from storm damage but does not include a separate credit for homeowners who upgrade their non-glazed garage doors. Secure argued that Section 627.0629(1), Florida Statutes, requires that homeowners who upgrade their non-glazed garage doors receive an additional insurance credit. However, the DCA’s review of the case found that pursuant to Form 1699, homeowners are entitled to the same “opening protection” insurance credit for “Windows or All,” meaning that homeowners who upgrade or strengthen only their windows to protect against storm damage receive the same insurance credit as those homeowners who choose to upgrade both their windows and their (garage) doors. The issue of lawful standing to challenge the rule and forms was raised in the case by OIR. The DCA found that Secure failed to show that the rules and forms at issue have resulted in a “real or immediate” injury in fact sufficient to satisfy the requirements to have standing. Interestingly, the DCA went so far as to note that even if Secure had standing in this case, it would reverse the ALJ’s Final Order on the merits because, in the court’s opinion, the rules and forms at issue do not contravene or modify Section 627.0629(1) and, therefore, do not constitute an invalid exercise of delegated legislative authority.

Florida’s CAT Fund Appears In Excellent Financial Shape But Concerns Remain

Tuesday 10-15-13- The Florida Hurricane Catastrophe Fund Advisory Council met to review and vote on its October 2013 Claims Paying Capacity and Bonding Estimate Report. The report prepared by Council financial advisor, Raymond James, indicates that The Florida Hurricane Catastrophe Fund could finance its $17.002 billion in potential obligations during the 2013-14 hurricane seasons and still have significant capacity for the second season. The CAT Fund reports having $9.764 billion in cash on hand leaving the difference from potential obligations at $7.236 billion. With pre-event bond holdings hovering at $2.0 billion, an additional $5.236 billion in post-event bonding would be needed in order to fully cover the Fund’s $17 billion in potential obligations. During the meeting Raymond James expressed confidence in the CAT Fund’s ability to secure the $5.236 billion in post-event bond financing should it become necessary and in fact, estimated the Fund’s bonding capability at $6.1 billion during the first 12 months after an event and another $5.7 billion in the second 12 months. Looking purely at the data and estimates, the CAT Fund is in a more robust financial condition than ever before. However, concerns are being raised that one severe hurricane season could leave the Hurricane Catastrophe Fund in dangerous financial condition and raise the likelihood of large hurricane taxes being levied on almost every policy in the state. The R Street Institute’s Florida Director, Christian Camara, said after reviewing the Raymond James Report, “Florida’s unprecedented eight-year ‘drought’ in hurricanes has allowed, for the first time in several years, the Cat Fund to accumulate enough cash that, coupled with issuing billions in debt, will allow it to fully cover its obligations.” However, Camara went on to say, “But Floridians would still be socked with billions in taxes and the fund would be left bare to cover subsequent storms.  Now that the Cat Fund is at its healthiest, the time is right to shift some of that risk to the private market, so the Cat Fund is never again in a position where it is selling fake coverage.”

Additionally, just what the capital bond markets would look like in the aftermath of a serious hurricane impacting the state or a number of storms doing likewise is raising concerns about the true ability of the Cat Fund to raise post-event bond financing.  During the Advisory Council meeting former House Insurance Committee chairman and Council member Don Brown asked Raymond James if it was fully accounting in the estimates for the difficulty the Cat Fund might have in the bond markets after a major hurricane competing with Citizens and FIGA. Brown went further to say that the CAT Fund could well be competing with the state of Florida in general as it tries to raise funds to rebuild roads, bridges and hospitals. Brown later stated that he is not satisfied that enough consideration was given to the possibility that Citizens may compete with the Cat Fund in the bond market after a major event. “Raymond James staff says they don’t think it will be a problem but they cannot demonstrate that this risk has been properly accounted for,” he said. Brown even noted this caveat directly from the October 15th claims-paying capacity estimate report, ” Estimating the FHCF’s post-event bonding capacity is an inexact science…Certainty is not a defining characteristic of an exercise like this; nor can the results be responsibly guaranteed…participating insurers should recognize the potential impact that financial markets can have on the FHCF’s claims-paying ability. He went on to noted that, ” There are two significant reasons Cat Fund finances have been improving and neither has  been because of improvements in the bond markets. “TICL has gone from $12 billion to effectively zero; and cash has gone from almost none to almost $10 billion, due in no small part to the fact that we have had no land-falling hurricanes coupled with the rapid cash build up factor which allows us to accumulate cash at a rate that would not be possible without it. “Florida has now gone longer without a hurricane than at any time in recorded history.  Luck or a blessing from Mother Nature, either way we should not count on this good fortune continuing indefinitely. “So, improvements in our financial position in the last several years are due to prudent fiscal management of the Cat Fund, not an improving bond market.” Even in light of these concerns the Advisory Council after extensive discussion unanimously approved the Fall Claims Paying Capacity and Bonding Estimate Report near the conclusion of the Council’s meeting.

Thirteen Insurers Already On Board to Join Citizens’ Clearinghouse

As Citizens Property Insurance Corporation continues its herculean efforts to meet the Legislature’s January 1, 2014 Clearinghouse start-up date, 13 of the state’s property and casualty insurers are signed up and committed to participating in the Clearinghouse program. Each of the following companies has signed a carrier agreement with Citizens and should be ready on January 1st to provide policies for risks (new and renewal) determined by the Clearinghouse to be ineligible for Citizens coverage:

•Ark Royal

• Bankers Insurance Group

•Florida Peninsula


•Modern USA

•Olympus Insurance

• People’s Trust

•Safe Harbor (Cabrillo)

• Security First

•Southern Oak

•Tower Hill Preferred

• Tower Hill Prime

•United Property & Casualty

U.S. Representative Ross Files Bill to Help Property Owners Finance Mitigation EffortsReinsurance Association of America Lends Support


Wednesday 10/16/13- Florida’s U.S. House of Representatives member Dennis Ross (R, District 15) introduced a bill (H.R. 3298) establishing Disaster Savings Accounts (DSA) which can be used by eligible individuals to finance structural mitigation efforts. If passed by Congress and enacted in to law the legislation will be known as the Disaster Savings Accounts Act of 2013. The bill creates a new section within the Internal Revenue Code of 1986 detailing DSAs and the permitted use of tax-deferred dollars to permit eligible individuals to deduct from gross income, annual amounts up to $5,000 that have been set aside in a tax-deferred account for use toward disaster mitigation expenses. An eligible individual is one who owns property, upon which a structure sits, that is also insured by a policy traditionally required by a mortgage-holding lender. The bill also allows a DSA to be established under the management of a “Trustee”, which can be a bank, insurance company or other entity that can demonstrate proper management and distribution of funds as detailed by the act. It further lists qualified mitigation expenses allowed for distribution of funds from a DSA, including an activity further specified by federal regulation as appropriate in mitigating risks of future hazards (including earthquake, flood, hail, hurricane, lightening, power outage, tornado and wildfire) and any other natural disaster. The legislation further establishes that any amount contributed over $5,000 shall be included in the gross income of the account holder for tax-filing purposes; exempts remaining DSA funds that rollover into the following year and includes a 20% penalty tax on funds withdrawn from a DSA and used for purposes other than disaster mitigation expenses. Finally, the bill allows a Cost-Of-Living adjustment to the $5,000 annual cap on pre-tax DSA contributions. Two days after Representative Ross filed the bill the Reinsurance Association of America (RAA) announced its strong support. “The RAA has long supported proactive mitigation efforts to harden homes and businesses thereby reducing the human and economic loss from disasters, particularly in geographic regions prone to repeated events. We commend Rep. Ross for introducing this legislation and look forward to working with him to successfully move the legislation forward” said Frank Nutter, president of the Reinsurance Association of America. We will monitor this federal legislation’s movement through Congress and keep you posted on developments. The bill has already been referred to the House Committee on Ways and Means.

Department of Financial Services Tightens Disciplinary Rules For Agents And Adjusters Who Commit Crimes

Tuesday 10-22-13- The Department of Financial Services (DFS), Division of Agent & Agency Services has issued notice that its amendments to Rule Chapter 69B-231.150, F.A.C.,” Criminal Proceedings” will be final and effective on November 6, 2013. This specific rule chapter addresses the disciplinary penalties which will be imposed by DFS against agents, adjusters and other individuals licensed under Chapter 626, Florida Statutes, who plead nolo or are convicted of or found guilty of felony crimes while licensed, regardless of whether the court withholds adjudication in such cases. Based upon DFS’s amendments, the standard penalty against any licensee who commits a felony will be revocation. If the crime committed involves a felony of the first degree; a capital felony; a felony involving money laundering, fraud, or embezzlement; or a felony directly related to the financial services business, the revoked licensee will never be eligible to apply for reinstatement or a new license. If the crime does not fall into one of the categories previously mentioned, the former licensee must wait between 7 and 15 years before being eligible to apply for a new license, depending on specific facts as set out in the revised rule. Insurers and other appointing entities are reminded that they are duty bound under the Insurance Code to report to DFS should they become aware that one of their appointees has committed a felony crime. Please let us know if you have any questions regarding this amended rule.

Batten Down the Hatches

The old phrase, “batten down the hatches” means, metaphorically, to prepare for a rough time ahead. A hatch is essentially a horizontal doorway through a ship’s deck, rather than a vertical doorway through a wall. This phrase comes to mind when we think about statewide and local elections that will occur in the next 12 months. Think about this: The national Real Clear Politics October survey data show 20.1% of Americans positive about the direction of the country; and almost 80% are convinced the country is on the “wrong track.” Indications are that Floridians are no different than the rest of the country in hoping for real change in our country’s direction.

So what do political scientists tell us to conclude from these data points?

*No one seems to feel comfortable or safe whether the topic is personal safety or financial safety, the uneasiness is real. Florida’s statewide policymakers are doing all they can to create jobs, help our economy rebound and restore confidence but its difficult when our national leaders have lost focus.

* It’s a good time for bold interventions and leaders will make the difference.

* Those we talk with (and many of you know this in talking to claimants and policyholders) are frustrated, disappointed and increasingly cynical which can make our jobs in the industry tough if we make the smallest mistake because it can turn into a big deal.

It’s likely the first quarter of 2014 will set the table for 2014’s critical fourth quarter when these elections will occur. All eyes are on Obamacare, Syria, Iran, GDP growth and the level of bipartisanship in Washington. If little changes on most of these fronts, lots could change next November!

You can “feel in the air” how these upcoming elections are influencing Florida’s legislative debates, and for those of us who have been around a long time, election pressure can be both good and bad. It’s too early to discern the “bad” but it’s our hope that the “GOOD” will prevail and hopefully, translate into legislation that positively affects every one of us. So, know that we are watching all that is “in the air” and as usual, want and need your thoughts and ideas to make life in Florida, and this country, better each day.

Warmest regards always, Lisa